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1 WhatsApp: Toll Free: Follow us on Social Media Facebook: Twitter: LinkedIn: Pinterest: Assignment Studio Copyright

2 1 (a) Abbreviated Income Statements: Cash basis Accrual basis Consulting fees revenue $44,250 $43,000 $54,000 $48,250 Expenses $30,000 $34,500 $36,000 $28,950 Profit $14,250 $8,500 $18,000 $19,300 CALCULATIONS CASH BASIS Consulting fees revenue - Cash basis 2012 Cash collected for services performed during the year $42,000 Prepaid revenue collected in 2012 for services performed in 2013 $2,250 Total consulting fees revenues on cash basis $44,250 Expenses - Cash basis Cash paid for services received $24,000 Prepaid expenses - Cash paid during the year $6,000 Total expenses on cash basis $30,000 Consulting fees revenue - Cash basis 2013 Cash collected for services performed during the year $43,000 Total consulting fees revenues on cash basis $43,000 Expenses - Cash basis Cash paid for services received $25,500 Prepaid expenses - Cash paid during the year $9,000 Total expenses on cash basis $34,500

3 CONVERSION TO ACCRUAL BASIS Consulting fees revenue 2012 Cash collections $44,250 Accounts receivable, beginning of the year (subtracted) $0 Accounts receivable, end of the year (added) $12,000 Unearned revenue, beginning of the year (added) $0 Unearned revenue, end of year (subtracted) ($2,250) Revenues earned during 2012 (accrual basis) $54,000 Expenses Cash payments for expense items $30,000 Accrued payables, beginning of year (subtracted) $0 Accrued payables, end of year (added) $10,500 Prepaid expenses, beginning of year (added) $0 Prepaid expenses, end of year (subtracted) ($4,500) Expenses incurred during 2012 (accrual basis) $36,000 Consulting fees revenue 2013 Cash collections $43,000 Accounts receivable, beginning of the year (subtracted) ($12,000) Accounts receivable, end of the year (added) $15,000 Unearned revenue, beginning of the year (added) $2,250 Unearned revenue, end of year (subtracted) $0 Revenues earned during 2013 (accrual basis) $48,250 Expenses Cash payments for expense items $34,500 Accrued payables, beginning of year (subtracted) ($10,500) Accrued payables, end of year (added) $10,950 Prepaid expenses, beg. Of year (added) $4,500 Prepaid expenses, end of year (subtracted) ($10,500) Expenses incurred during 2013 (accrual basis) $28,950

4 1 (b) If the statement of financial position is prepared on accrual basis, on 31 December 2013, in addition to cash, the statement would also show: Receivables $15,000 Accrued payables $10,950 Prepaid expenses $10,500 Notes: If accounts are prepared using accrual basis, the statement of financial position would also show: On 31 December 2012 Receivables of $12,000 booked as assets. Prepaid revenues of $2,250 pertaining to 2013 booked as liabilities (not as revenues). Accrued expenses of $10,500 shown as liabilities. Prepaid expenses net balance in the account will be $4,500 as assets. Equity account will be credited by $18,000 net profit. On 31 December 2013 Increase in receivables of $3000:- $15,000 (ending balance) less $12,000 (opening balance). Prepaid revenue balance will decrease by $2,250 to zero:- $2,250 (opening balance) and zero (ending balance). Accrued payables will increase by $450:- $10,950 (ending balance) less $10,500 (opening balance). Prepaid expenses will increase by $6,000:- $10,500 (ending balance) less $4,500 (opening balance). Equity account will be credited by $19,300 net profit.

5 2 (a) Adjusting entries are shown below: General Journal Page xx DATE ACCOUNTS AND EXPLANATIONS POST. DEBIT CREDIT REF 30-Jun Employee Salaries 1 $ 9, Accounts Payable $ 9, Being salary payable 30-Jun Insurance Expenses 2 $ Prepaid insurance $ Being prepaid insurance expired 30-Jun Accounts Receivable 3 $10, Interest Income $10, Being interest accrued 30-Jun Security Services Revenue received in 4 $ 4, advance Security Services Revenue $ 4, Being unearned Security services revenue now earned 30-Jun Depreciation 5 $16, Asset Account $16, Being depreciation on assets 30-Jun Supplies expenses 6 $ 1, Supplies account $ 1, Being supplies used 30-Jun Prepaid Rent 7 $ 1, Cash $ 1, Being 9 months advance rent paid on 1 April 30-Jun Rent expenses 7 $ Prepaid Rent $ Being 3 months rent expired 30-Jun Advertising expenses 8 $ Accounts payable $ Being advertising expenses accrued

6 2 (b) Had the entries in requirement (a) not been passed, the profit would have been overstated by $14,650 as per the details below: ACCOUNTS DEBIT CREDIT Employee Salaries $ 9, Insurance expense $ Interest Income $ 10, Security Services Revenue $ 4, Depreciation $ 16, Supplies expense $ 1, Rent expenses $ Advertising expenses $ $ 29, $ 14, An overstatement of profit by $ 14,650.00

7 3 (a) The 10-colum worksheet for the year ended 30 June 2014 is shown below: G.Cilic Work Sheet Month Ended 30 June 2014 ACCOUNT TITLE TRIAL BALANCE ADJUSTMENTS ADJUSTED TRIAL BALANCE INCOME STATEMENT BALANCE SHEET DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT Cash at bank $ 13,640 $ 13,640 Accounts Receivable $ 11,800 $ 11,800 Prepaid Insurance $ 1,680 $ 1,240 $ 440 $ 1,240 $ 1,240 Land $ 69,200 $ 69,200 Building $ 196,000 $ 196,000 Accumulated Depreciation - Building $ 112,880 $ 9,280 $ 122,160 $ 9,280 Equipment $ 20,120 $ 20,120 Accumulated Depreciation - Equipment $ 8,800 $ 3,240 $ 12,040 $ 3,240 Accounts Payable* $ 16,040 $ 5,760 $ 21,800 $ 4,760 $ 5,760 Mortgage Payable $ 28,520 $ 1,000 $ 27,520 $ 1,000 G. Cilic, Capital $ 103,840 $ 103,840 G. Cilic, Drawings $ 127,360 $ 127,360 Fees Earned $ 227,920 $ 227,920 Rent Revenue $ 14,400 $ 14,400 Salaries Expenses $ 63,600 $ 2,360 $ 65,960 $ 2,360 $ 2,360 Telephone Expenses $ 4,520 $ 4,520 Interest Expenses $ 3,080 $ 280 $ 3,360 $ 280 $ 280 Insurance Expenses $ 1,400 $ 1,240 $ 2,640 $ 1,240 $ 1,240 Rates expenses $ 2,120 $ 2,120 Depreciation on equipment $ 3,240 $ 3,240 $ 3,240 Depreciation on Building $ 9,280 $ 9,280 $ 9,280 $ 512,400 $ 512,400 $ 19,520 $19,520 $ 529,680 $ 529,680 $ 22,400 $ - $ 1,000 $ 23,400 Net profit/loss $ 22,400 $ 22,400 Note: *Accounts payable adjustment of $5,760 includes:- Rates Expenses $2,120; Mortgage Payable $1,000; Salaries Payable $2,360 & Interest payable on Mortgage $280

8 3 (b) The income statement, statement of changes in equity and balance sheet are shown below: G.Cilic Income Statement Month Ended 30 June 2014 Revenues Fees earned $227,920 Rent Revenue $ 14,400 Total Revenue $242,320 Expenses Salaries Expenses $ 65,960 Telephone Expenses $ 4,520 Interest Expenses $ 3,360 Insurance expenses $ 2,640 Depreciation - Equipment $ 3,240 Depreciation - Building $ 9,280 Rates Expenses $ 2,120 Total expenses $ 91,120 Net profit $151,200 G.Cilic Statement of Changes in Equity Month Ended 30 June 2014 G. Clinic Capital balance $ 103,840 G. Clinic Drawings account balance $ (127,360) Add Net Profit for the year $ 151,200 Total Equity $ 127,680

9 G.Cilic Balance Sheet 30 June 2014 ASSETS Current Assets Cash at bank $ 13,640 Accounts Receivable $ 11,800 Prepaid insurance $ 440 Total current assets $ 25,880 Non-current Assets Land $ 69,200 Building $ 196,000 Less accumulated depreciation - building $ (122,160) Equipment $ 20,120 Less accumulated depreciation - Equipment $ (12,040) Total non-current Assets $ 151,120 Total Assets $ 177,000 LIABILITIES Current liabilities Accounts payable $ 21,800 Total current liabilities $ 21,800 Non-current liabilities Mortgage payable $ 27,520 Total non-current liabilities $ 27,520 Total Liabilities $ 49,320 EQUITY G. Clinic Capital $ 103,840 G. Clinic Drawings $ (127,360) Add Net Profit for the year $ 151,200 Total Equity $ 127,680 TOTAL LIABILITIES AND EQUITY $ 177,000

10 3 (c) The closing entries at the end of the year are shown below: